Higher Wages Could Mean Lower Employee Theft, Study Says

Author: Ashley Shaw, XpertHR Legal Editor

December 26, 2013

The results of a study by Tatiana Sandino, an associate professor at Harvard Business School, and Clara Xiaoling Chen, assistant professor at the University of Illinois at Urbana-Champaign, suggest that employers may be able to reduce their employee-theft rate by increasing their employees' wages. In the paper titled Can Wages Buy Honesty? The Relationship between Relative Wages and Employee Theft, it is concluded that nearly 40 percent of an employer's cost of paying higher wages can be recovered by a decrease in employee theft. In other words, the cost of employee theft could decrease by nearly 40 cents for every dollar in increased salaries.

Retail employers in particular face high rates of employee theft: the National Retail Security Survey reported that 2011 retail theft rates added up to about a $34.5 billion loss for the industry, with 43.9 percent of that loss coming from employee theft. This equates to more than $15 billion lost due to employee theft alone. Sandino and Chen rationalize that employees who make more money are happier with, and less likely to do anything that could harm, their employer or result in job loss (e.g., stealing from their employer). Also, the pair hypothesize that higher paying stores will attract more honest employees.

Retail industry employers have developed a reputation for being low-paying, and employees cite their "inability to meet needs" as one of the biggest reasons that they steal. Increasing wages so employees can at least meet their basic needs may be another reason that wage levels and the incidence of theft correlate.

While the benefits of a lower theft rate may not add up to the full cost of a pay raise, an employer might still be justified in increasing wages. The paper suggests that if an individual employer finds that the benefits of paying higher wages, such as improved employee morale and lower job turnover, would equate to at least 61 cents to the dollar, that particular employer might actually benefit from offering higher wages.

While this study focused on the retail industry, the authors suggest that the findings might also apply to other industries, such as the restaurant industry. They also emphasize that they are not telling employers they must increase wages to decrease theft, but they are suggesting that low-paying employers with a high incidence of employee theft may want to consider increasing their employees' wages as part of the solution to the problem.